U.S. leading index increases by 1.2 percent

The Conference Board announced Jan. 22 that the U.S. leading index increased by 1.2 percent, the coincident index in-creased by one-tenth of a percent, and the lagging index decreased by one-tenth of a percent in December 2001.

According to a news release from The Conference Board, the increase in the leading index in December 2001 is the largest gain since February 1996. With this month's gain, the leading index has increased for three consecutive months, bringing the index level above the pre-recession peak.

The leading index continues to be driven by the expansionary monetary policy initiatives of the Federal Reserve. This is further strengthened by a rebound in the employment and expectations components in recent months, the release stated.

The coincident index's gain this month is the first in five months.

This, coupled with a robust leading index, indicates that the economy, barring any unexpected shock, is gathering momentum.

Leading indicators

Eight of the 10 indicators that make up the leading index increased in December of last year. The positive contributors to the leading index from the largest positive contributor to the smallest were average weekly initial claims for unemployment insurance, interest rate spread, money supply*, average weekly manufacturing hours, index of consumer ex-pectations, building permits, stock prices, and vendor performance. The two negative contributors to the index, beginning with the largest negative contributor, were manufacturers' new orders for nondefense capital goods* and manufacturers' new orders for consumer goods and materials*.

The leading index now stands at 111.4. Based on revised data, this index in-creased eight-tenths of a percent in November 2001 and increased one-tenth of a percent in October. During the six-month span through December 2001, the leading index increased 1.7 percent, with four of the 10 components advancing (diffusion index, six-month span equals 40 percent).

*Note: Series in the leading index that are based on The Conference Board estimates are manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods, and the personal consumption expenditure deflator for money supply.

Coincident indicators

Two of the four indicators that make up the coincident index increased in De-cember. The positive contributors to the index - beginning with the larger positive contributor - were personal income less transfer payments* and manufacturing and trade sales*. The negative contributors to the index beginning with the larger negative contributor were em-ployees on nonagricultural payrolls and industrial production.

With the decline in December 2001, the coincident index now stands at 115.3.

Based on revised data, this index de-creased three-tenths of a percent in November 2001 and decreased one-tenth of a percent in October.

During the six-month period through December 2001, the coincident index de-creased five-tenths of a percent.

*Note: Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales.

Lagging indicators

The lagging index decreased one-tenth of a percent to 103.2 in December 2001. Five of the seven components of the lagging index decreased in that month. The negative contributors to the index from the largest negative contributor to the smallest were change in CPI for services, average prime rate charged by banks, average duration of unemployment, commercial and industrial loans outstanding*, and ratio of manufacturing and trade inventories to sales*. The positive contributors to the index beginning with the larger positive contributor were ratio of consumer installment credit to income* and change in labor cost per unit of output*. Based on revised data, the lagging index decreased three-tenths of a percent in November 2001 and decreased 1.1 percent in October 2001.

*Note: Series in the lagging index that are based on The Conference Board estimates are inventories-to-sales ratio, consumer installment credit-to-income ratio, change in labor cost per unit of output, and the personal consumption expenditure deflator for commercial and industrial loans outstanding.

Data availability

The data series used to compute the composite indexes are those available as of noon Jan. 18.